On June 17, 2013, the U.S. Supreme Court granted a petition for
certiorari in a case that will decide whether "disparate
impact" liability — liability based solely on a
practice's alleged discriminatory
effect, though the actor had no intent to
discriminate — can be imposed under the Fair Housing Act. The
Court took the case despite urging from the federal government to
decline it. The Court appears poised to reject disparate impact
liability.

This is not the first time the Court has granted review in a
case raising the viability of disparate impact claims under the
Fair Housing Act. The last time the Court took the issue, the
petitioner withdrew the case prior to argument. There is some
evidence that officials in the U.S. Department of Justice may have
encouraged that decision in order to prevent the Court from ruling.
It remains to be seen whether a similar outcome will occur
here.

The Decision Under Review

The case now before the Supreme Court is Township of Mount
Holly v. Mt. Holly Gardens Citizens in Action, Inc. It arose
from efforts by the Township of Mount Holly, in Burlington County,
New Jersey, to redevelop a blighted neighborhood known as the
Gardens. The redevelopment plan called for the demolition of all of
the existing homes in the Gardens, to be replaced by homes of
higher value. Most of the residents of the Gardens were low to
moderate income minorities, many of whom would not be able to
afford the new homes in the redeveloped neighborhood.

Residents of the Gardens brought suit in federal district court
in New Jersey, alleging that the redevelopment plan discriminated
against minorities in violation of the Fair Housing Act. The
district court granted summary judgment in favor of the township,
finding that the redevelopment plan was not discriminatory
"because 100% of minorities will be treated the same as 100%
of non-minorities in the Gardens," given that the plan
required the demolition of all of the homes. Mt. Holly Garden
Citizens in Action, Inc. v. Township of Mount Holly, 658 F.3d
375, 383 (3d Cir. 2011) (describing district court opinion). The
citizens appealed to the U.S. Court of Appeals for the Third
Circuit, which reversed the district court. The Third Circuit
criticized the district court's "conflation of the concept
of disparate treatment with disparate impact." The Third
Circuit explained that the township's redevelopment plan
potentially violated the Fair Housing Act not because it
deliberately treated minority residents differently than
non-minority residents, but because statistics submitted by the
plaintiffs showed that "22.54% of African-American households
and 32.31% of Hispanic households in Mount Holly will be affected
by the demolition of the Gardens," but the "same is true
for only 2.73% of White households."

The Third Circuit concluded that these statistics were
sufficient to establish a prima facie case that the redevelopment
plan violated the Fair Housing Act. The Third Circuit emphasized
that this prima facie showing was not the end of the story. Rather,
it merely shifted the burden to the defendant township to identify
"a legitimate non-discriminatory reason for its actions."
If the township identified such a reason, it would then have to
show that "no alternative course of action could be adopted
that would enable that interest to be served with less
discriminatory effect." Only if the township met that burden
would the burden then shift back to the plaintiff residents to show
"that there is a less discriminatory way to advance the
defendant's legitimate interest." The Third Circuit
concluded that issues of material fact precluded summary judgment
and remanded the case to the district court to develop the record
under this burden-shifting framework.

The Language of the Fair Housing Act

The Third Circuit is not alone in holding that disparate impact
liability is available under the Fair Housing Act. Indeed, all of
the federal circuit courts that have considered the issue have
reached the same conclusion. But this conclusion does not sit well
with the actual language of the statute. Courts have long held that
federal anti-discrimination laws such as Title VII allow for
disparate impact liability because they explicitly target
discriminatory effects, even in the absence of discriminatory
intent. Title VII, for example, not only prohibits an employer from
discriminating "against any individual with respect to his
compensation, terms, conditions, or privileges of employment,
because of such individual's race, color, religion, sex, or
national origin," but also prohibits any employment practice
"which would deprive or tend to deprive any individual of
employment opportunities or otherwise adversely affect his status
as an employee, because of such individual's race, color,
religion, sex, or national origin." 42 U.S.C. §
2000e-2(a)(1) & (2). The Supreme Court has explained that the
use of the word "affect" in the latter provision
"focuses on the effects of the
action on the employee rather than the motivation for the action of
the employer." Smith v. City of Jackson, 544 U.S.
228, 236 (2005) (plurality opinion) (emphasis in original); see
also id. at 243-47 (Scalia, J. concurring) (deferring to the
Equal Employment Opportunity Commission's interpretation of the
word "affect" as "authoriz[ing] disparate-impact
claims").

By contrast, the Fair Housing Act does not contain any
"affect" language. The statute makes it unlawful to
"refuse to sell or rent ... or otherwise make unavailable or
deny, a dwelling to any person because of race, color, religion,
sex, familial status, or national origin." 42 U.S.C. §
3604(a). Similarly, the statute makes it unlawful for anyone
"engaging in residential real estate-related
transactions" (such as making loans for the purchase or
construction of a home) to discriminate "in the terms or
conditions of such a transaction, because of race, color, religion,
sex, handicap, familial status, or national origin." 42 U.S.C.
§ 3605(a). These provisions look much more like Section
2000e-2(a)(1) of Title VII, which "does not encompass
disparate-impact liability," Smith, 544 U.S. at 236
n.6, rather than Section 2000e-2(a)(2), which does recognize such
liability.

The Petition for Certiorari

On June 11, 2012, the Township of Mount Holly filed a petition
for certiorari in the Supreme Court seeking re view of the Third
Circuit's ruling. The petition posed two questions. First, the
township asked the Court to take the case because the Third
Circuit's ruling conflicts with the plain language of the Fair
Housing Act, given the absence in the statute of the
"affect" language on which such liability usually is
predicated. Second, the township asked the court to review the
burden-shifting framework articulated by the Third Circuit, which
required the township not only to identify a legitimate
nondiscriminatory reason for its actions but also to demonstrate
that there was no alternative that could serve this interest with
less discriminatory effect.

The township explained that while the various federal courts of
appeal that had considered the issue agreed that the Fair Housing
Act permitted disparate impact liability, there was considerable
disagreement in the circuits regarding the appropriate framework to
evaluate such liability. While some circuits, such as the Third,
require the defendant to prove the absence of a less discriminatory
alternative, others, such as the Sixth and Eighth Circuits, shift
the burden back to the plaintiff to prove that there is such an
alternative once the defendant identifies a legitimate
nondiscriminatory reason to support its actions. In the First
Circuit, however, the defendant's identification of a
nondiscriminatory reason is fatal to the plaintiff's claim
altogether. The township argued that these and other areas of
confusion in lower courts' Fair Housing Act decisions needed to
be resolved. (Click here to view the township's petition for
certiorari.)

HUD's Disparate Impact Regulations

On February 15, 2013, while the township's petition for
certiorari was pending, the U.S. Department of Housing and Urban
Development (HUD), invoking its authority to interpret and
implement the Fair Housing Act, issued a final rule recognizing
disparate impact liability. See 24 CFR § 100.500. HUD
may have issued its disparate impact rule either in an effort to
preempt a grant of certiorari by the Supreme Court, or in the hopes
that if the Court did grant certiorari it would defer to HUD's
interpretation and uphold disparate impact liability, much as
Justice Scalia deferred to the EEOC in Smith.

If this was HUD's strategy it may have been in vain. After
the township filed its petition for certiorari, the Court asked to
Solicitor General to submit a brief expressing the United
States' views on whether the petition should be granted. The
Solicitor General submitted that brief on May 17, 2013. The
Solicitor General urged the Court not to grant the petition, in
part because HUD had issued its regulations interpreting the Fair
Housing Act to allow for disparate impact liability, so there was
no pressing need for the Court to weigh in. The Court apparently
disagreed that HUD's regulations obviated any need for review
because it granted the petition for certiorari shortly after
receiving the Solicitor General's brief. However, in granting
the petition, the Court limited its review to the first question
raised by the township (whether the Fair Housing Act permits
disparate impact claims at all) and refused to resolve the second
question in the township's petition (regarding what
burden-shifting framework should be applied in evaluating such
claims).

The Outcome?

If the Court is able to reach a decision on the merits, the
likeliest outcome is that the Court will strike down disparate
impact liability under the Fair Housing Act. As noted above, such
liability is difficult to square with the language of the statute.
Moreover, the Court limited its grant of certiorari to the first of
the two questions raised by the township, the question on which the
courts of appeal actually agree. If the Court were to uphold
disparate impact liability, the considerable confusion regarding
the applicable burden-shifting framework would remain unresolved,
and the Court would have accomplished very little by taking the
case in the first place. Hence, the Court's decision to limit
review to the township's first question may indicate that a
majority of the justices are inclined to hold that the Fair Housing
Act does not authorize disparate impact claims.

However, the Court may never reach a decision on the merits. In
2011, the Court granted certiorari in a case, Magnerv. Gallagher, that would have decided this same issue, but
the petitioner, the City of St. Paul, Minnesota, withdrew the
petition prior to argument. Afterwards, members of the House
Judiciary Committee sent a letter to Attorney General Eric Holder,
in which they suggested that Justice Department officials had made
a deal with the city to drop the case. (Click here to view the
letter.) It is always possible that similar developments may
prevent the Court from deciding the Mount Holly case.

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